Despite all the gloom, Australia isn’t sinking
ANALYSIS
For a long time a number of Australia’s key economic indicators have pointed down – be it falling iron ore prices, weakened government revenues, tanking business investment, growing under-employment or falls in real per capita income.
Journalists feel obliged to report these facts – this columnist included.
Yet while all that gloom is true, it’s important to bring some perspective by thinking about what economic success will look like in the years ahead and how we might get there.
One way to do that is see ourselves through foreign eyes.
An American viewpoint
Across the Pacific, Donald Trump is rallying angry Americans with the slogan “make America great again”, seemingly oblivious to the fact that the US is virtually the only economy in the world that has produced a sustained recovery in the aftermath of the global financial crisis.
That’s not to say they can’t do much better. Equity across socio-economic and ethnic groups is a growing problem, and health and educational outcomes are well short of what you’d expect from the world’s only remaining super power.
If we apply Trump’s slogan to Australia, should we be seeking to ‘make Australia great again’, or to ‘keep Australia great’?
Actually, despite so many gloomy headlines, the numbers strongly support the latter.
That’s because an economy is much more than the business transactions that are captured by gross domestic product surveys.
Economic growth happens when a number of factors are brought into the right balance – national security, a firm and predictable rule of law, a supply of healthy and well educated workers, favourable investment conditions, and efficient and robust financial and industrial relations frameworks.
In recent decades we’ve learned to add ‘sustainability’ to that list, because selling the farm or running down other kinds of capital stock is not an ‘economy’ – it’s a cash grab.
The Australia difference
One big difference between Australia and the US is that during the Ronald Reagan and Margaret Thatcher period of the 1980s and early 1990s, Australia introduced free-market reforms in quite a different way to other nations embracing globalisation.
That historic reform era was based on eight agreements known as the ‘Prices and Incomes Accords’ – the brainchild of the Bob Hawke government, business leaders and unions, who found common ground for such reforms at Hawke’s 1983 National Economic Summit.
In effect Hawke said to Australian workers, ‘As we globalise, you’re going to take a pay cut in real terms, but you’ll gain a world-beating social wage’.
Hawke took the emaciated Medicare left by outgoing PM Malcolm Fraser and his treasurer John Howard, and funded it to become one of the most comprehensive and efficient health systems in the world.
Labor got to work on expanding tertiary education opportunities, better family assistance payments and childcare, and industry policies such as the Button car plan.
And by the time of Prime Minister Paul Keating, it overhauled draconian industrial relations laws to provide a more flexible enterprise bargaining system, and added the superannuation guarantee.
Major reforms followed during the Howard and Rudd-Gillard government eras, such as tax reform and the National Disability Insurance Scheme, but it was the 1980s when the biggest reform push occurred.
There’s no point arguing that the policies of that era have been unproblematic. Medicare is on the slide, cracks are appearing in the demand-driven university sector, middle-class welfare is bloating the federal budget in some areas and so on.
But to get back to the ‘keep Australia great’ theme, these kinds of reforms were not enjoyed by US citizens to the same degree.
And for those who argue they were one big socialist endeavour, the economic facts show otherwise.
After Keating’s ‘recession we had to have’, Australian growth outstripped the US model.
Adjusted for population growth and using World Bank ‘purchasing power parity’ (PPP) data, Australian GDP was 1.6 times larger in 2015 compared to 1990.
Over the same period, Americans were only 1.4 times better off in PPP terms.
Granted, these are top-line figures that in Australia’s case include a mining boom.
But the point remains that the recipe for success included not just cuts to wages, taxes and red tape, as the early proponents of globalisation suggested.
What made Australian growth so strong was a balance of numerous factors, including the many strands of the social wage.
That needs to stay front of mind when reading gloomy headlines, because if we don’t protect the models of governance, enterprise and social equity that put us ahead of the world, we’ll surely fall down the ranks.
And in that regard, it’s worth remembering that Australia is not mid-way up the multi-faceted ‘human development index‘ published by the United Nation’s.
We’re number two in the 2015 league table, behind only Norway. The US is number eight.
Moreover, even if national income per capita reduces substantially – to say 2000 levels when we were about 20 per cent less wealthy in PPP terms – we’ll still have the means to create the right balance for new growth.
Day to day, the economic news will continue to be bad for some time.
But viewed over a longer period, we should remember that we aren’t only a ‘lucky country’. Quite a bit of thought went into making us ‘great’, as Donald Trump might put it.